EI’s Heneghan talks first deal in Argentina in 20 years

Equity International is returning to Argentina for the first time since the 1990s in a deal with Goldman Sachs and a Texas family office.

The trio is investing $300 million to form ARG Realty Group, a Buenos Aires-based real estate company. ARG is seeded with a 1 million square foot portfolio of office and retail properties from local private investment firm Grupo Pegasus, which will manage the company.

The investor consortium has committed $75 million in growth capital to reposition some of the existing assets and further expand the portfolio, which could include logistics and other property types, EI president Tom Heneghan told PERE.

EI last invested in Argentina through a single-asset deal in 1999 but stayed out of the country in a period of political and financial instability. Under current Argentine president Mauricio Macri, whose term started in 2015, Heneghan sees more macroeconomic certainty. Last year’s midterm elections cemented EI’s positive house view on the country, whose real estate market has seen little new supply but a pickup in demand from multinationals returning to the country, he said.

“We spent some time talking to all the [real estate] players in Argentina – it’s not a large group of people,” Heneghan said. “This opportunity came to us and we realized that it was going to take a unique consortium to get the deal done.”

Although EI spoke with sovereign wealth funds and public pension funds, among other institutional investors, once the deal was under exclusivity, most investors told Heneghan they could not move Argentina to their investment committees’ approved countries list in time for the ARG deal. While the investors did not take part in this transaction, EI chief investment officer Brian Finerty predicted that more investors will enter the country in the coming year.

“There are people actively thinking about it and working on it internally who are not ready to pull the trigger, but the level of dialogue has measurably picked up in the last year,” he said. “As the current government in Argentina continues to prove its durability, more of these large sovereign wealth funds and pension fund capital will start to pull the trigger in Argentina. In terms of size and scale, there’s not a lot of opportunity [in Latin America] beyond Mexico and Brazil.”

EI found two willing partners for this deal in Goldman Sachs’ private equity division and Centaurus Capital, a Houston-based family office and longtime partner with EI and its associated companies. For EI’s part of the deal, the firm used capital from its sixth opportunistic fund and co-investment capital. The firm closed emerging markets-focused EI Fund VI last year on $354 million, a source familiar with fundraising told PERE.

Looking forward, Heneghan said an initial public offering is a likely exit for ARG, since institutional capital has been more interested in the country’s public markets than its private markets. Moreover, the public markets will continue to perform in light of the current administration’s reforms, including tax cuts and austerity measures to revive the country’s economy, he said.

“More and more institutional capital is going to look at Argentina as an investable country,” Heneghan said. “We put a great group together that can stay long if necessary to continue growing and scaling that platform, or pivot if we get liquidity through an IPO in shorter time… This sets up as a nice IPO story.”